Extraordinary Considerations When Appraising a Commercial Condominium


When appraising a commercial condominium, the appraiser has additional considerations compared to the appraisal of a non-condominium real estate property. The appraiser must consider the land ownership, type of property, the strength of the association, and what things are covered within the association fee. Properly handling these issues is essential to providing an accurate valuation of a commercial condominium.

The major consideration is that the underlying land is not owned in fee simple by the condominium owner, but is owned by the condominium association.  However, when describing the property, the appraiser will usually include the Site Description in the appraisal report for informational purposes. It is inappropriate to consider land value if the appraisal is of a single commercial condominium.

When identifying comparable properties, the appraiser must consider the type of property, since retail, office and industrial uses can all have condominium-type ownership.  Also, the square footage of the unit is important, since smaller condominium properties generally sell for higher unit prices, and vice versa.  The general condition of the property, especially the exterior, is an important consideration, since the exterior condition is usually beyond the control of the unit owner, and a poor exterior presentation can significantly alter the value of the property, even if the condominium unit’s interior is of excellent quality and condition.

 Another important aspect of the condominium ownership is the "strength" of the condominium association, which is responsible for maintaining the common areas, imposing special assessments, paying for common area utilities, enforcing rules, along with many other duties. In effect, the condominium association is a form of government that the condominium owner must comply with, or else be fined and/or liened. A poorly run association could have a significant adverse effect on the valuation of a commercial condominium.

Another major consideration when appraising commercial condominiums is which services the association fees cover. The fees could cover the cost of tenant unit utilities, common area utilities, common area maintenance, insurance, and many other things. A proper understanding of what the association fees cover and who is responsible for paying the association fee (tenant or owner) is crucial to providing an accurate Income Approach to valuation.

Other important consideration in the appraisal of commercial condominiums include the number of units leased, as opposed to owner-occupied; any current litigation associated with the property; and the number of parking spaces included with each unit.  If you need a commercial condominium appraisal, it is important to select a competent appraiser who understands the intricacies of the assignment. For more explanation on appraisal methodology, visit our website at www.commercial-appraisers.com.